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31 January, 00:21

In 2017 Sabrina earned an annual salary of $100,000 as an engineer. In 2018, her income rose to $105,000. The inflation rate in 2018 was 2%. How did Sabrina's nominal income and real income change in 2018 compared to 2017?

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  1. 31 January, 04:08
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    Change in Nominal income = 5%

    Change in real income = 2.9 %

    Explanation:

    Real income is the amount of basket of goods and services that can be actually purchased. It is the nominal income adjusted for inflation.

    Real income = (CPi in base base year / CPI current year) * Nominal income

    Real income for Sabrina

    = (100/102) * 105,000

    = 102,941.1765

    Change in real income = (102,941.1765 - 100,000) / 100,000

    = 2.9 %

    Change in Nominal income = (105,000-100,000) / 100,000

    = 5%
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